The debate over the UAW's role in the plight of the Big Three automakers and its responsibility for the cratering of the bailout deal has been rather tendentious. Let's start with the oft-cited statistic that the hourly labor costs of the big three are north of $70/hr while that of the name-brand Japanese manufacturers operating in the US are a bit over $40/hr.
The number seems indisputably correct but there is a disagreement over just what it means and how significant it is.
One argument belabors the obvious but does correct what may be a common mispprehension. To say that labor costs are $ 70/hr is not to say that the average Big Three worker receives this in cash compensation. UAW defenders point out that the average base wage of an assembler is actually around $28/hr. Nice money but much less than $ 70/hr.
Of course, if we stop there, we understate cash compensation. The UAW contracts contain a complicated patchwork of provisions for overtime, premium pay, compensation during layoffs, etc. It turns out that the cash compensation of current UAW workers is around $40/hr per hour worked. Since, to use Chrysler/Daimler as an example, the average hourly employee worked 35.5. hours per week in 2006, actual cash compensation would be a little under $ 74,000. For production line work, that's a ton.
But cash compensation is not all there is. The UAW has negotiated very nice health care and pension packages. Do they make up the remaining $ 30-some/hr?
No, say the critics of the number. They claim that it includes the cost of paying benefits to current retirees and at least one GM spokesperson is quoted as saying that it does.
But this seems to be contradicted by company documents. James Sherk at the Heritage Foundation goes over the companies' SEC filings and concludes it does not. What it includes, he says, is amounts set aside to pay the promised retiree benefits of the current workers -something that currently applicable accounting standards require. Benefits paid out to current retirees are another matter,he says, costing the companies roughly another $30/hr per hour worked by current workers. In other words, according to Sherk, if you include legacy costs, the labor burden per current hour worked actually exceeds $100/hr.
I can't say who is right, but Sherk's claim sounds closer to the truth. If Chrysler/Daimler, to use one example, is paying and accruing, as he reports, $20/hr per current hour worked for the current and future health care costs of current workers, it seems unlikely that the pension obligations to current workers and the rather substantial benefits enjoyed by 84,000 retired workers and their families could be accounted for by a little over $10 per current hour worked.
Either way, the UAW contracts are still pretty rich. But what difference does it make? For ease of reading and in accord with blog etiquette, let's address that in a second post.